How to Turn Your Startup Into a Franchise

Many entrepreneurs want to purchase a franchise to capitalize on a successful existing brand, but being the owner of a business that you then franchise out has its perks, too. You can open multiple locations without being responsible for each one's day-to-day operations. And selling the rights to your business model and product also means you won't have to bankroll the entire new location yourself.

"Most commonly, business owners want to franchise because it is an effective way to expand a business, yet involves limited risk and less capital," said David Lopez, CEO and co-founder of Dental Fix Rx, a mobile dental-equipment repair-service franchise.

Do your homework

You likely did a lot of research on your target consumers and location before you initially opened your business. While that groundwork is already done, you'll need to do some further investigation to get familiar with the world of franchising.

"A company that is franchised is built and operated entirely differently than most businesses," said Brian Tollefson, founder of Tikiz Shaved Ice & Ice Cream. "Before making the decision to franchise a concept, it's crucial to ... fully understand the franchise business model. Many don't realize the time commitment and effort it takes to franchise a company, in addition to the costs associated to properly do it."

"Running your current business is [not the same as] managing a franchise company," Lopez added. "If you own a restaurant, running the day-to-day operations of that business is very different than running the day-to-day operations of a company that franchises restaurants."

Hire professional help

Once you've decided to take the leap into franchising, don't take the journey alone. Lopez recommended hiring professionals who know the franchise landscape to help you out in the beginning.

"Hire a very good franchise attorney and an experienced franchise executive to assist you along the way," he said. "There are a lot of costly mistakes that can be made early on without these key players on your team."

This is especially true when you're creating your franchise disclosure document (FDD), which provides potential franchisees with everything they need to know about your company, your sales figures and other key business information.

"There is a great amount of information to understand about the FDD prior to putting one together, including what specific details need to be provided and how the franchisor's business model will work in the present and future of the franchise," Tollefson said. "Having a franchise attorney ... [to help write] the FDD is key."

Be consistent in your branding

Although franchisees are typically given a bit of leeway in how they run their individual locations, your customer base still needs to be able to recognize your brand from store to store.

In a 2013 interview, Andrew Modlin, a branding and design expert who has helped turn local businesses into thriving franchise companies, said that branding should remain constant across all subsequent locations.

"Your logo, store design and existing branding tactics make your business what it is," Modlin told Business News Daily. "When you start planning your franchise, it's important to keep these elements consistent so customers will recognize your brand."

Research your costs

Modlin said that many prospective franchisers aren't prepared for the cost and effort of opening a franchise, especially when it comes to scalability.

Ask yourself if your current vendor and supplier agreements will work on a larger scale, and work out exactly how long it will take to make back the extra money you'll have to pay to get the franchise started.

Create a marketing strategy

As a franchise owner, you are now responsible for marketing both your product to consumers, and your business to prospective franchisees. Coming up with a solid marketing plan for both will keep you on track as you grow.

"Marketing in franchise sales is all about how many leads you can generate, the cost of the leads and how many you can convert," Lopez said. "It is very hard at first to figure out the proper marketing strategies to implement. This is something that improves over time, so it's important to not give up and [to] be patient."

Tollefson advised franchisors to keep their business models as simple as possible, so they're easier for franchisees to understand.

"When marketing a new franchise concept, the more a prospective franchise partner has to grasp to understand the whole business model, the harder it will be to recruit good franchise partners," he said. "You will have a much better chance at succeeding if you fully understand what it takes to be a successful franchisor and to have successful franchisees."

This article was originally published in 2013 and was updated Nov. 20, 2015.

Nicole Fallon Taylor

Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the assistant editor. Reach her by email, or follow her on Twitter.